ANALYSIS / Business

The day the oil runs dry

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The Kempinski Emirates Palace, Abu Dhabi, is home to an exhibition showcasing the under-construction Saadiyat Island development. An exhibition that has been toured, among many, by one George W Bush.

The exhibition is bordered by a wall covered with facts and figures concerning the growth of the UAE. Hidden among this wall is a white board sporting a series of bar charts that may have raised the eyebrows of a keen-eyed Bush on his January visit to the capital.

As the chart states, in 1975, 21.2% of the UAE’s gross domestic product was generated by the service sector, while 67.7% came from the mining and oil industries. By 2005, the service sector accounted for 42.1%, while mining and oil accounted for just 32.8%.

Oil, as we know, cannot last forever. Both Abu Dhabi and Dubai have begun to demonstrate that it’s time to begin laying the groundwork within which their societies can operate without the financial benefits and guarantees that oil brings to the respective populations.

Abu Dhabi, through such developments as the Louvre and the Guggenheim, has begun to signal its intentions through a gradual shift towards cultural tourism, pursuing its responsibilities to provide its people with cultural amenities worthy of a capital city.

One hundred and twenty kms down the road  lies Dubai. The city of man-made islands, super-tall skyscrapers and indoor ski slopes. The city in which you can bob through a shark tank on an inflatable ring is planning to diversify along a very different path.

But there is a fine line to tread between the opening up of a society to a world of globalised traditions, and remaining sensitive to regional traditions. Treading this line becomes even more perilous when the source of income that has been relied upon for generations threatens to run dry.

The peak oil question
In 1956 Marion Hubbert published his theory on the capacity of oil fields and natural gas reserves, correctly predicting that US oil production would peak between the late 1960s and early 1970s.

Hubbert’s predictions were based around a bell-shaped curve, which came to be known as the Hubbert Curve, and the peak as “peak oil.” By theorising that oil production would peak when known reserves were at their highest, Hubbert was able to track the approximate time frame for depletion.

Today, experts are in wide agreement that the point of global peak oil is upon us. In June, Thomas Pickens, BP Capital Management hedge fund chairman, said, “I do believe we have peaked out at 85 million barrels a day globally.”

With a little more urgency, a Financial Times report last year warned that the world would face an oil crisis “within the next five years.” With words such as “crisis” now making their way into the oil man’s vocabulary, just how long do Dubai and Abu Dhabi have left?

Measuring oil reserves is no exact science, and even proven reserves can only be estimated. The BP statistical review of world energy, published last June, estimated the UAE’s proven oil reserves to be 97.8 billion barrels.